SEC allegedly wants spot Bitcoin ETFs to do cash creates, not crypto, after possible meet-up with exchanges
|- ETF specialist Eric Balchunas says the SEC may have engaged with exchanges this week regarding spot Bitcoin ETFs.
- Based on the rumors, the commission wants ETFs to do cash creates as opposed to crypto as broker dealers cannot deal in Bitcoin.
- The financial regulator may have asked the trading platforms to make amendments.
With the market counting down the clock for the eight-day window the US Securities & Exchange Commission (SEC) has to approve a spot Bitcoin exchange-traded fund (ETF), recent developments point to the financial regulator turning to crypto exchanges for engagement.
Also Read: Ethereum is a commodity, but SEC will not admit it, expert says amid ongoing ETF race
SEC engages with exchanges
An ETF specialist with Bloomberg Intelligence, Eric Balchunas has revealed speculation that the SEC may have engaged with cryptocurrency trading platforms on spot Bitcoin ETFs. According to Balchunas, the financial regulator’s Trading and Markets division discussed 19b-4 filings with exchanges this week. 19b-4 filings are used by self-regulatory organizations (SROs) such as exchanges to petition the SEC for new rule changes. The rumor is that the SEC has been trying to sell the idea that spot Bitcoin ETFs should do cash creates as opposed to trading in physical crypto.
Based on the report, the financial regulator’s proposition is that broker-dealers cannot deal in Bitcoin, unlike exchanges. But if the ETFs do cash creates, the broker dealers – who are essentially the institutional players tabling their spot BTC ETF applications to the SEC – would take the initiative to transact in BTC.
This, according to Balchunas, would mean less limitations for everyone as it would keep the institutional players from having to use unregistered subsidiaries or third-party firms to deal with the BTC.
Cash creates makes sense IMO bc broker dealers can’t deal in bitcoin so doing cash creates puts onus on issuers to transact in bitcoin and keeps broker dealers from having to use unregistered subsidiaries or third party firms to deal w the btc. Less limitations for them overall
— Eric Balchunas (@EricBalchunas) November 17, 2023
Cash creates makes sense IMO bc broker dealers can’t deal in bitcoin so doing cash creates puts onus on issuers to transact in bitcoin and keeps broker dealers from having to use unregistered subsidiaries or third party firms to deal w the btc. Less limitations for them overall
— Eric Balchunas (@EricBalchunas) November 17, 2023
Nevertheless, the ETF specialist observes that only two or three filers had planned cash creates, with the rest looking to do in-kind.
This could warrant adjustment or lead to the financial regulator recording yet another series of delays. With this, the SEC may have asked the trading platforms to add amendments to their applications over the next two weeks, which though unexpected is a good sign, according to Balchunas.
Notwithstanding this recent news, Balchunas clings to the 90% odds that he and colleague James Seyffart gave the SEC for approving the spot BTC ETF by January 10.
It is worth mentioning that the Canadian spot ETFs have been using the cash create model for years now.
Meanwhile, since there was no update on Franklin’s spot BTC ETF application, which was due on Friday, Seyffart says he is expecting a delay order soon.
Crypto ETF FAQs
What is an ETF?
An Exchange-Traded Fund (ETF) is an investment vehicle or an index that tracks the price of an underlying asset. ETFs can not only track a single asset, but a group of assets and sectors. For example, a Bitcoin ETF tracks Bitcoin’s price. ETF is a tool used by investors to gain exposure to a certain asset.
Is Bitcoin futures ETF approved?
Yes. The first Bitcoin futures ETF in the US was approved by the US Securities & Exchange Commission in October 2021. A total of seven Bitcoin futures ETFs have been approved, with more than 20 still waiting for the regulator’s permission. The SEC says that the cryptocurrency industry is new and subject to manipulation, which is why it has been delaying crypto-related futures ETFs for the last few years.
Is Bitcoin spot ETF approved?
Bitcoin spot ETF has been approved outside the US, but the SEC is yet to approve one in the country. After BlackRock filed for a Bitcoin spot ETF on June 15, the interest surrounding crypto ETFs has been renewed. Grayscale – whose application for a Bitcoin spot ETF was initially rejected by the SEC – got a victory in court, forcing the US regulator to review its proposal again. The SEC’s loss in this lawsuit has fueled hopes that a Bitcoin spot ETF might be approved by the end of the year.
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